Global Recession and Universities

Roger GoodmanVice President & Team Leader

Roger GoodmanVice President & Team Leader

June, 2009June, 2009

2

Overview

� Background on Moody’s and Role in Rating

Higher Education Institutions

� Trends in Global Higher Education Sector

� Financial Challenge for Universities

� Potential Roadmap for Future Direction of

Financial Management and Policy-setting

3

Moody’s Role and

Ratings

Perspective

4

Universities: Generally Highly Rated

Rated Universities: Canada

• Concordia University, Quebec – Aa2

• Lakehead University – A1

• McGill University, Quebec – Aa1

• Universite du Quebec a Montreal – Baa3

• University of Toronto – Aa1

• University of British Columbia – Aa1

• University of Ottawa, Canada - Aa1

• University of Ontario Inst Tech – A3

• University of Windsor – Aa3

Rated Universities: UK

• Brunel University – Aa1

• Keele University – Aa1

• Private Ratings & Estimate Coverage

Rated Universities: Other

• National University of Singapore - Aaa

• Benemerita Universidad Autonoma de Puebla – Ba1 (Mexico)

• Lebanese American University – A3 (Lebanon, U.S.)

Rated Universities: U.S.

• University of California – Aa1

• University of Michigan - Aaa

• University of Texas - Aaa

*Several more unpublished ratings used for variety of other transactions in UK and Non-US

*Moody’s rates over 200 public & 300 private universities in the U.S.

5

What Ratings Are Used For

� Debt Issuance (bonds, loans, etc)

� Board – evaluation of management, strategy, financial

position beyond auditors

� Donors – want opinion on viability and longevity of

organization

� Management – seek external opinion and dialogue on

emerging trends, strategy, financing issues; also seen as

competitive “ranking” tool generally

� Regulators/Accrediting Bodies – third-party opinion on

financial position that may be difficult within own process

6

Six Key Drivers for Stand-Alone Rating

1. Market position

2. Government Relationship

3. Governance and Management

4. Operating Performance

5. Debt Profile

6. Balance Sheet Strength

7

Trends in Global

Higher Education

Sector

8

Higher Education: A Global Growth Sector

� Rising governmental recognition of linkage of higher

education to economic development

� Most governments trying to increase funding, especially

with “stimulus” funding

� Some governments permitting universities more

flexibility to innovate and adapt revised business model

even if they can’t increase funds

� Globalizing trend—cross border flows of students,

faculties, financing

9

Enrollment Impact of Recessions

Enrollment Grows More Rapidly During and Year After Recession;

Largest Dips in Boom Years

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Total % Change in Enrollment

Indicates recessionary periods

Source: OECD Education at a Glance for Canada, France, Italy, Spain, UK and US

(only countries with complete data from 85 to present)

10

Higher Education Demand is Growing Rapidly

� Developed Countries:

– Economic and social policy goals clearly oriented toward

increasing participation rates, research capacity, quality

– Stature and breadth of higher education is a competitive issue

for nations

� Developing Countries:

– Often part of transition from labor intensive/natural resource

intensive economy

– In some cases, massive government investment already

underway (China, India, UAE, etc.)

11

Higher Education is Globalizing Rapidly

� Students are increasingly mobile, looking across borders

for best opportunities

� Research funding from corporations and foundations seek

out best academics and facilities without regard to borders

� Rising number of cross-border partnerships between

institutions

12

Financial

Challenge: Where

Are Resources to

Meet Demand?

13

Stimulus Funding: Good in Short-Term, But Then What?

Trend in General Government Budget Balance for Select OECD Countries

-16%

-14%

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009F 2010F

United Kingdom United States of America Canada

Germany Mexico Australia

Eurozone OECD Median

14

Government Funding: Conflicting Goals?

� Can Universities really grow impact with slow to limited

growth in funding and no ability to control/set tuition?

– Appearance of societal equity and tradition vs. university

pursuit of quality, competitiveness and differentiation

– Affordability or subsidized pricing focus vs. means-

tested/market pricing for students

� Competing public funding needs means that funding may

be subject to peaks and valleys (at least in growth rate)

– Inability to plan for funding expectations reduces impact of

increased government funding

15

Endowments, Philanthropy, etc.

� Relatively few, but globally recognized universities, face

large challenges

– Liquidity loss

– Budget support from endowment

– Philanthropy pressure

� Capital markets disruption

– Fewer loans at higher cost

– Banks stressed

– Project financings tougher to execute

16

Where to from

here?

17

It doesn’t have to take generations for business model to change….

18

Managing through Global Recession

� Governments face growing pressure to increase

independence of universities as ability to fund outstripped

by demand

� Universities (regardless of policy changes) pursue non-

government resources

– Tuition (differential by faculty, international students, etc)

– Research (greater pursuit of corporate research contracts)

– Philanthropy (even now, large potential)

19

Potential roadmap

� Exploring efficiency and effectiveness issues

– Cost reductions

– Change in teaching models? (year-round, 3yr degrees, etc)

– Online education

� Capital financing models

– Public-private partnerships

– Direct borrowing by universities

20

© Copyright 2009, Moody’s Investors Service, Inc. and/or its licensors including Moody’s Assurance

Company, Inc. (together, “MOODY’S”). All rights reserved. ALL INFORMATION CONTAINED HEREIN IS

PROTECTED BY COPYRIGHT LAW AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE

REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR

RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM

OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN

CONSENT.

Roger Goodman Tel: +1 (212) 553-3842

Vice President/Team Leader Email: roger.goodman@moodys.com